As I write this on Thursday, January 21st at around 3:00PM EST, bitcoin is currently down 8.3% over the last 24 hours to $32.4k. It’s down 17.2% over the last seven days. Altcoins are mixed, but mostly down as well. But none of that is cause for major concern.
One factor that’s driving the recent selloff — in my view — are comments by incoming Treasury Secretary Janet Yellen about crypto. Here’s an excerpt from Coindesk’s reporting.
Cryptocurrencies are “a particular concern” when it comes to terrorist financing, potential Treasury Secretary Janet Yellen said Tuesday.
Speaking at a Senate Finance Committee hearing on her anticipated nomination after President-elect Joe Biden takes office tomorrow, Yellen said the U.S. should be aware of emerging tools for terrorist financing.
“The technologies to accomplish this change over time and we need to make sure that our methods for dealing with these matters, with tech terrorist financing, change along with changing technology, cryptocurrencies are a particular concern,” she said in response to a question by Sen. Maggie Hassan (D-N.H.), who called crypto use in terrorist financing a “growing concern.”
…“I think many [cryptocurrencies] are used, at least in transactions sense, mainly for illicit financing and I think we really need to examine ways in which we can curtail their use and make sure that anti-money laundering doesn’t occur through those channels,” Yellen said Tuesday.
There’s really nothing new here. We know that establishment players like Yellen hate bitcoin and altcoins. She was the Chairman of the Federal Reserve after all. Bitcoin is an emerging threat to the fiat money system. And decentralized finance (DeFi) is a threat to banks. So it’s only natural she responded to Senator Hassan’s question in that way. Politicians have been making similar remarks for years.
Furthermore, I haven’t seen any reliable evidence showing that crypto has been used in terrorist financing. The vast majority of illegal activity is still conducted with fiat money, but you don’t see any calls for that to be banned. Crypto and fiat are both just mediums of exchange that can be used for any purpose — legal or otherwise. And fiat cash is actually far more anonymous than bitcoin, which has a public ledger.
Bogus Story about Bitcoin “Double-Spend”
There was also some (misplaced) concern about a potential “double-spend” on the bitcoin blockchain. This is a misunderstanding of a routine occurrence, as clarified by Andreas Antonopolous in this Bloomberg article.
“The Bitcoin blockchain is operating exactly as designed, and has been operating exactly as designed for 12 years,” said Andreas Antonopoulos, an expert in Bitcoin and open blockchain technologies. “What we saw today was a one block reorganization. These occur on average every two weeks, and are a normal part of the consensus algorithm.”
I believe the terrorist financing fears and double-spend scare were just the excuses market used to take some profits. We’ve had an incredible few months in the crypto markets recently. A major pullback was inevitable. Buyers seem to be stepping into bitcoin in the low $30k range. But if we go below there, I’m not going to panic. This is crypto. I’ve come to expect this type of volatility in the short term.
I remain focused on the long-term fundamentals and rising sentiment — both of which are very bullish. Government debt continues to soar. Interest rates are near zero and set to stay that way for a long time. Inflation is rising and likely to be encouraged by central banks for years to come (because inflation helps wipe away debt over time). And as we frequently highlight, all the infrastructure is finally in place for institutions to enter the market in a major way. This is still an excellent environment for crypto.
If you were waiting for a good spot to get into crypto, now seems like a fine time to start buying. If you want, spread your buys out over six months or a year. And remember — the best time to buy is when it seems like a horrible time to buy.